Cook Plays Defense Against Senators Over Apple's Taxes

Apple CEO Tim Cook defended his company's tax policies in Congress Tuesday, after the Senate released a report that condemned it for tax policies that used global subsidiaries to avoid paying billions in U.S. taxes.

Apple dodged taxes on as much as $44 billion in foreign income from 2009 to 2012, the report alleges. The company reportedly used subsidiaries to get around certain tax responsibility. For instance, Apple Operations International, a subsidiary out of Ireland, reported $30 billion in income during the four years, but there were no employees or income taxes filed for five years.

Another company, Apple Sales International, reported $74 billion in sales during the four years but paid less than 1 percent in taxes to Ireland.

Senators Carl Levin (D-Mich.) and John McCain (R-Ariz.) led the charge against Cook, contending that the majority of Apple's operations took place in the U.S., yet the percentage of taxes it paid to the country didn't add up.

When the senators spoke in percentages, Cook spoke dollars and cents, asserting that Apple had paid "every single dollar" of the $6 billion it owed last year without relying on tax "gimmicks." He also noted the 300,000 new jobs that Apple's wildly successful retail stores have created in the U.S.

Apple did not respond to our request to comment for this story.

Complex But Not a Crime

The heat was on Cook Tuesday, but the company is unlikely to face any further regulatory penalties, said Aswath Damodaran, professor of corporate finance at the
Stern School of Business at New York University.

That's because one of Cook's main points ultimately holds true -- that the company's policies, while perhaps complicated, aren't illegal. Apple's working of every loophole to its advantage might get under the skin of regulators, but it's not a crime, said Damodaran.

"The senators will fulminate against the calumny of Apple and its unwillingness to pay its fair share of taxes," he told MacNewsWorld. "In fact, there is nothing in the Senate report that suggests Apple has broken any rules or laws, and even the most damning parts of the report upbraid Apple for being really good at exploiting the tax laws as written."

Singled Out

If Congress can't find a way to punish Apple for its tax sins, the bigger question becomes how regulators could revise the country's current tax codes, said Robert Heim, securities attorney at
Meyers & Heim LLP.

New technologies are making it easier for businesses to operate across multiple borders, and the country's tax laws haven't exactly kept up. New regulations could help ensure that Apple, and many other companies with similar practices, pay a greater percentage of their taxes to the U.S.

Cook acknowledged as much during his testimony, advocating for a simpler tax code that would likely result in higher taxes for Apple but would help the company avoid the Senate scrutiny it is currently facing.

"The corporate tax code needs to be revisited and updated for a global economy," Heim told MacNewsWorld. "Apple and other companies have established overly complex ways to deal with getting around some of these taxes, and this is an opportunity to spur a debate on the larger issue."

It's unlikely this closer look at Apple's policies will be the catalyst that drives a U.S. tax code overhaul, though, said Heim.

"Congress seems to be singling out Apple," he pointed out. "The strategy Apple uses is fairly common among large companies. What makes Apple unique is that it's a high profile name and the amount of revenue and profit it generates, so it is able to save billions in corporate taxes."

That treatment might generate some interest around the issue, said Damodaran, but proponents of a revamped national tax policy shouldn't hold their breath.

"After all is said and done," he added, "more will be said than done."

Rachelle Dragani is a freelance reporter based in Brooklyn, NY. She enjoys staying on top of e-commerce deals, reporting on what new gadget is coming your way, and keeping tabs on anyone trying to hack into your info. Feel free to e-mail her at rachelle.dragani@newsroom.ectnews.com.